EuroFinance 2024: Automating Cash Management Processes for Enhanced Cash Flow: Insights from Industry Leaders

The automation of cash management processes has become essential for optimizing liquidity and improving cash flow visibility. At a EuroFinance roundtable featuring Roberto Rossetti, Treasury and Funding Manager at HERA SPA, and Elise Hoyet, Head of Virtual Account and Payment Factory Domain at Societe Generale, the conversation focused on key trends and strategies for automating these processes.

The Importance of Liquidity and Cash Visibility

One of the primary themes discussed was the importance of liquidity management. Rossetti emphasized that visibility on cash is the first step toward optimizing liquidity. Effective cash management starts with ensuring that reconciliation processes are efficient and streamlined. HERA, one of Italy's largest utility companies, processes over million transactions monthly, making real-time visibility crucial for managing their working capital. Reconciliation plays a pivotal role in enhancing cash flow, as it allows companies to track payments accurately and avoid bottlenecks in their cash cycles.

The Shift to Digital Payments

Another significant trend is the growing adoption of digital and instant payments, based on SEPA Credit Transfer (SCT) transactions that are progressively replacing SEPA Direct Debit Transactions. With new payment methods comes the challenge of reconciling these transactions effectively. Indeed, SCTs are harder to reconcile than SDD. Corporate clients must adapt to these changes by implementing robust reconciliation tools to manage the influx of new payment methods. HERA is increasingly moving towards SCTs and instant payments, underlining the need to ensure that customers have a seamless payment experience. As Rossetti pointed out, “Nobody wants to go to a physical bank to pay their bill anymore.”

Virtual IBANs: A Solution for Complex Cash Management

Elise Hoyet from Societe Generale advocated for the use of virtual IBANs (VIBANs) as a solution for complex reconciliation challenges. Virtual IBANs allow companies to automate the reconciliation process by assigning a unique identifier to each customer or transaction, simplifying the process for both the business and the customer. Hoyet highlighted that VIBANs can be activated and deactivated in real-time, providing flexibility and ensuring high-quality reconciliation.

Use cases for virtual IBANs include handling large volumes of incoming payments. The solution also helps implementing payment factories, and managing Pay On Behalf Of (POBO) or Collect On Behalf Of (COBO) structures. VIBANS can streamline payment processes for corporate clients by clearly identifying different subsidiaries or transactions.

Case Study: HERA’s Implementation of VIBANs

HERA SPA, which manages vast numbers of transactions, chose to assign a VIBAN to each customer rather than each invoice. This decision was made to simplify the process for clients while maintaining clarity and control over incoming payments. The VIBANs are generated by the bank and assigned by the company’s CRM system to customers, with the payment information printed on the first invoice.

One of the key challenges that HERA faced was managing manual reconciliation, especially with large public administrations, which still require some level of manual intervention. However, by closing existing physical accounts and transitioning to virtual accounts, HERA has reduced the sunk costs traditionally associated with manual reconciliation processes.

Forecasting Cash Flows with Greater Accuracy

For companies like HERA, accurate cash forecasting is critical. By automating and optimizing the reconciliation process, HERA can refresh 95% of their cash forecast daily, allowing for more timely and accurate updates on their financial position. Understanding customer payment habits is essential in this regard, as it allows the company to predict which customers will pay on time and which will delay their payments.

The Role of Change Management in Automation

Hoyet stressed the importance of thorough analysis and change management when implementing such automation projects. These projects are often complex and expensive, requiring companies to redefine their treasury management systems (TMS) and onboard both internal and external partners. Testing is a crucial phase in the implementation process, and Societe Generale has set up dedicated implementation teams to help clients successfully transition to automated cash management systems.

Looking Ahead: AI and Machine Learning in Cash Management

While HERA has not yet integrated artificial intelligence into its processes, the company has begun using machine learning to identify transaction patterns and further streamline cash management. The adoption of these advanced technologies is expected to grow as companies continue to refine their automation processes.

In conclusion, the automation of cash management processes, driven by trends such as digital payments, virtual IBANs, and machine learning, is transforming the role of treasury departments. As companies like HERA and Societe Generale demonstrate, these innovations not only improve cash flow visibility but also reduce costs and enhance efficiency, positioning businesses for long-term financial stability.

Redbridge is an independent debt and treasury advisory firm that provides comprehensive treasury operations and debt advice to corporations around the globe. Contact us to discuss your financing, payment or treasury project.